Cash Flow Calculator for Small Business
Project monthly operating cash flow from expected income and expenses to see whether your business will run a cash surplus or shortfall.
Reviewed by Sahil, Senior Finance & Tax Editor
Formula
Net Cash Flow = Revenue - COGS - OpEx - Taxes + Depreciation - CapEx + Other Income - Loan Payments
Cash flow is calculated by starting with revenue, subtracting cost of goods sold and operating expenses to get operating income, adding back depreciation (a non-cash expense), subtracting capital expenditures and taxes, then adding other income and subtracting loan payments. Free Cash Flow equals Operating Cash Flow minus Capital Expenditures, representing discretionary cash available.
Worked Examples
Example 1: Monthly Cash Flow Analysis for Small Business
Problem:A small business has $50,000 monthly revenue, $20,000 COGS, $15,000 operating expenses, $2,000 other income, $3,000 loan payments, $3,500 taxes, $1,500 depreciation, and $2,000 capex.
Solution:Gross Profit = $50,000 - $20,000 = $30,000 (60% margin)\nOperating Income = $30,000 - $15,000 = $15,000 (30% margin)\nEBITDA = $15,000 + $1,500 = $16,500 (33% margin)\nNet Income = $15,000 + $2,000 - $3,500 = $13,500\nOperating Cash Flow = $13,500 + $1,500 = $15,000\nFree Cash Flow = $15,000 - $2,000 = $13,000\nNet Cash Flow = $13,000 + $2,000 - $3,000 = $12,000
Result:Net Cash Flow: $12,000/month | FCF: $13,000 | EBITDA: $16,500 | Net Margin: 27%
Example 2: Startup Burn Rate Calculation
Problem:A startup earns $15,000/month revenue with $8,000 COGS, $25,000 operating expenses, no other income, $1,000 loan payment, $0 taxes, $500 depreciation, and $3,000 capex.
Solution:Gross Profit = $15,000 - $8,000 = $7,000\nOperating Income = $7,000 - $25,000 = -$18,000\nNet Income = -$18,000 + $0 - $0 = -$18,000\nOperating Cash Flow = -$18,000 + $500 = -$17,500\nFree Cash Flow = -$17,500 - $3,000 = -$20,500\nNet Cash Flow = -$20,500 + $0 - $1,000 = -$21,500\n\nBurn rate: $21,500/month\nWith $200,000 in the bank: 9.3 months of runway
Result:Burn Rate: $21,500/month | Negative FCF: -$20,500 | Needs funding within 9 months
Frequently Asked Questions
What is cash flow and why is it important for businesses?
Cash flow is the net amount of money moving in and out of a business during a specific period, representing the actual liquidity available for operations, investments, and obligations. Unlike profit, which is an accounting concept that includes non-cash items like depreciation and accounts receivable, cash flow tracks the real movement of money. A business can be profitable on paper while running out of cash if customers pay slowly or inventory costs are high. Cash flow is often considered more important than profit because a company can survive temporarily without profit but cannot survive without cash to pay employees, suppliers, and lenders. Monitoring cash flow allows business owners to anticipate shortfalls, make informed spending decisions, and maintain financial stability.
What are the three types of cash flow?
The three categories of cash flow are operating cash flow, investing cash flow, and financing cash flow, each representing different aspects of business financial activity. Operating cash flow (OCF) measures money generated from core business operations, including revenue collection, supplier payments, payroll, rent, and other day-to-day activities. This is considered the most important type because it reflects the sustainability of the business model. Investing cash flow tracks money spent on or received from long-term assets like equipment purchases, property, and investments. Financing cash flow records transactions related to funding the business, including loan proceeds and repayments, equity investments, and dividend distributions. Together, these three categories provide a comprehensive picture of how money flows through the organization and where it comes from.
What is the difference between cash flow and profit?
While both cash flow and profit measure financial performance, they differ in fundamental ways that make each useful for different purposes. Profit (net income) is calculated using accrual accounting, which records revenue when earned and expenses when incurred, regardless of when cash actually changes hands. This means a company can show a profit while having no cash if customers have not paid their invoices. Cash flow only counts money that has actually been received or paid out. Additionally, profit includes non-cash expenses like depreciation and amortization, which reduce reported profit without requiring any cash outlay. Conversely, capital expenditures like buying equipment require large cash outlays but are not recorded as expenses on the income statement. Understanding both metrics is essential for complete financial analysis.
What is free cash flow and how is it calculated?
Free cash flow (FCF) represents the cash a business generates after accounting for capital expenditures needed to maintain or expand its asset base. The basic formula is FCF = Operating Cash Flow minus Capital Expenditures. FCF is considered one of the most important financial metrics because it shows how much cash is truly available for distribution to stakeholders, debt repayment, share buybacks, acquisitions, or reinvestment beyond what is needed to sustain operations. A company with strong and growing free cash flow has maximum financial flexibility and is generally considered healthier than one with high revenue but low FCF. For investors, free cash flow is often preferred over earnings as a valuation metric because it is harder to manipulate through accounting choices and more directly represents the economic value the business produces.
References
Reviewed by Sahil, Senior Finance & Tax Editor · Editorial policy